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Maximum drawdown of a Brownian motion and AlphaBoost: a boosting algorithm

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(1)

(2)

(3)

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+ '(($,-.

. (*$ $/ 01 02 /

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2( % ,22 2 2

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:+9 = % $0 + + + + + + + + + + + + ;

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9 $0!

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02 + .

W

(

t

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0

t

T

7 %

X

(

t

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X

(

t

) =

σW

(

t

) +

µt

2

µ

σ

0

A %+ , 22

M DD

(

T

;

µ, σ

) = max

s

∈[0

,T

]

( max

r

∈[0

,s

]

X

(

r

)

X

(

s

))

!9+9#

,22&( &

%+ %,

&(2%+ 22%

&+ 82& %

& 2 &

% & 2 %+ & (

2 % 2 + % %% (

(11)

2&,%,22%%&

&+ 2 %& 2 ,

22 ,% 1 & , 22+

7'& %

M DD

2

G

M DD

(

h

) = Pr[

M DD

h

]

2

G

M DD

(

h

) = 2

σ

4

n

=1

θ

n

sin

θ

n

σ

4

θ

n

2

+

µ

2

h

2

σ

2

µh

e

µh

σ

2

1

e

σ

2

θ

2

nT

2h

2

e

µ

2

T

2

+

L

!9+#

2

L

&

L

=

0

µ <

σ

2

h

3

e

1

e

µ

2

T

2

µ

=

σ

2

h

2

σ

2

η

sinh

η

(

σ

2

µh

µ

2

h

2

+

σ

4

η

2

)

e

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1

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n

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n

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7'& % ,% &

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E

[

M DD

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σ

2

µ

Q

M DD

(

α

2

)

2

α

=

µ

T /

2

σ

2

Q

M DD

(

x

) =

Q

p

(

x

)

µ >

0

γ

2

x

µ

= 0

Q

n

(

x

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µ <

0

2

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=

π/

8

Q

p

Q

n

2,,%

& +

(12)

0?9 @ %& 2( *

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% + **% %

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(13)

!

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(14)

X(t)

MDD

t

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2 2 & 22 %%%+

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& & (2

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.

X

(

t

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2( 2 %

µ

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σ

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t

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2( &

t

[0

, T

]

+ 7'&

X

(0) = 0

X

(

t

)

2 %

& +

$ 022%

µ

&%

σ

2

& 2

(15)

W

(

t

)

2 % 2 2%%

E

[

dW

(

t

)

dt

] = 0

!+#

E

[

dW

(

t

)

dt

dW

(

s

)

ds

] =

δ

(

t

s

)

!+:#

δ

(

.

)

+ >

dW

(

t

)

*

2 2

E

[

dW

(

t

)] = 0

E

[

dW

(

t

)

2

] =

dt

+ > %*

,%

X

(

t

)

%

E

[

X

(

t

)] =

µt

V

[

X

(

t

)] =

σ

2

t

+

&

[0

, T

]

(

n

&

t

=

T /n

+

X

i

=

X

(

i

t

)

i

= 0

,

1

, ..n

2

X

i

2

X

i

+1

=

X

i

+

δ

2 %

X

i

δ

2 %+

!+ #

7 %

δ

p

2( &

t

0

02

[0

, T

]

2

µ

A%

σ

+

%

δ

p

2

E

[

X

n

X

0

] =

n

(

p

q

)

δ

=

µT

!+;#
(16)

δ

=

σ

t

1 +

µ

2

t

σ

2

1

/

2

!+5#

p

=

1

2

1 +

µ

t

σ

1 +

µ

2

t

σ

2

1

/

2

!+"#

q

=

1

2

1

µ

t

σ

1 +

µ

2

t

σ

2

1

/

2

!+4#

$%

t

0

p

0

.

5

δ

0

t

+

2( %

2 (

t

1+ %2 &

δ

σ

t

!+9#

p

1

2

1 +

µ

t

σ

!+99#

%2(

X

t

22(22

D

t

22 %& , & 2

D

0

= 0

+

D

t

&

X

t

+

X

t

2

D

t

%

X

t

%

D

t

2 2 ,%

D

t

2 1+

X

t

2

2( 2 %

p

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t

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1

p

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0

+ ,22 &

M DD

= max

t

D

t

!+9#

% %

M DD

h

2

h

+ 2(

D

t

2

D

t

h

t

[0

, T

]

+

%

M DD

h

% %
(17)

% 2(

i

th

%

G

(

h

|

T

) =

P

[

absorbtion

[0

, T

]] =

T /

t

i

=0

f

(

i

|

h

)

!+9:#

f

(

i

|

h

)

2% 7( ?94@ % 2

p/q <

(1 + 1

/N

)

2

2%0?:@2&

f

(

i

|

h

) =

˜

f

(1)

p

q

<

1 +

N

1

2

˜

f

(2) +

3

2

2

i

p

1

2 (

i

N)

q

1

2 (

i+N)

(

N

+1)(

N

+

1

2

)

p

q

=

1 +

1

N

2

˜

f

(3) +

2

i

p

1

2 (

i

N)

q

1

2 (

i+N)

q

1

2

cosh

i

1

β

sinh

2

β

(

N

+1)

q

1

2

cosh(

N

+1)

β

N p

1

2

cosh

N β

p

q

>

1 +

1

N

2

!+9 #

2

N

=

h/δ

˜

f

(

k

) =

2

i

p

1

2

(

i

N

)

q

1

2

(

i

+

N

)

N

v

=

k

q

1

2

cos

i

−1

α

v

sin

2

α

v

(

N

+ 1)

q

1

2

cos(

N

+ 1)

α

v

N p

1

2

cos

N α

v

!+9;#

2

α

v

N

−1

,

(

v

+1)

π

N

−1

q

1

2

sin(

N

+ 1)

α

v

p

1

2

sin

N α

v

= 0

!+96#

β

q

1

2

sinh(

N

+ 1)

β

p

1

2

sinh

N β

= 0

!+95#

+9 +9;+9: 2

+ >

δ

p

& +99 (

t

0

2 &

+ %% 2

ˆ

f

τ

(

t

|

h

)

%

%

[

t, t

+ ∆

t

]

f

ˆ

(18)

G

(

h

|

T

) =

T /

t

i

=0

t

f

τ

(

i

ˆ

t

|

h

)

!+9"#

t

0

2 &

ˆ

f

τ

(

t

|

h

)

f

τ

(

t

|

h

)

% 2 &

t

0

G

(

h

|

T

) =

T

0

dtf

τ

(

t

|

h

)

!+94#

λ

=

µ

t

σ

1 +

µ

2

t

σ

2

1

/

2

p

=

1

2

(1 +

λ

)

t

0

2&

λ

µ

t

σ

>

lim

x

→∞

1 +

1

x

x

=

e

2

2

i

p

1

2

(

i

N

)

q

2

1

(

i

+

N

)

= (1

λ

2

)

2

i

1

λ

1 +

λ

N

2

e

µ

2t

2

e

µh

σ

2

!+#

3,% &

α

v

+96

λ

%2

tan

N

+

1

2

α

v

cos

α

v

=

2

λ

sin

α

v

2

α

v

N

−1

,

(

v

+1)

π

N

−1

θ

v

=

N

+

1

2

α

v

+ ,

v

α

v

0

2 (

,%

α

v

tan

θ

v

=

σ

2

µh

θ

v

2

θ

v

N

+

1

2

N

−1

,

(

v

+ 1)

π

N

+

1

2

N

−1

(

vπ,

(

v

+ 1)

π

]

+ 1

&

β

2

tanh

N

+

1

2

β

cosh

β

=

2

λ

sinh

β

2

η

=

N

+

1

2

β

( 2

tanh

η

=

σ

2

(19)

˜

f

+

sin

α

v

θ

v

N

+

1

2

θ

2

v

cos

i

−1

α

v

(

N

+

1

2

)

2

(

N

+ 1)

cos(

θ

v

+

2

1

α

v

)

A

cos(

θ

v

1

2

α

v

)

!+9#

2

A

=

(1+

λ

)

1

2

(1+

1

N

)(1−

λ

)

1

2

+ >

lim

x

→0

cos

1

/x

2

x

=

e

−1

/

2

2

cos

i

−1

α

v

e

σ

2

θ

vt

2

2h

2

+ % ( 2 &

˜

f

2

h

2

θ

2

v

e

σ

2

θ

2

vt

2h

2

1

µh

σ

2

cos

θ

v

θ

v

sin

θ

v

=

θ

v

sin

θ

v

[

σ

4

θ

v

2

+

µ

2

h

2

]

[

σ

4

θ

v

2

+

µ

2

h

2

µhσ

2

]

!+#

+9;&

t

2

˜

f

˜

f

(

k

)

e

µ

2t

2

e

µh

σ

2

σ

2

h

2

v

=

k

θ

v

sin

θ

v

[

σ

4

θ

v

2

+

µ

2

h

2

]

e

σ

2

θ

2

vt

2h

2

[

σ

4

θ

v

2

+

µ

2

h

2

µhσ

2

]

!+:#

+9 %

µ <

σ

2

h

µ

=

σ

2

h

µ >

σ

2

h

+

2 & 2 %

++ 2

p

q

=

1 +

1

N

2

+ &

t

2

,

e

µ

2t

2

3

σ

2

2

eh

2

!+ #

p

q

>

1 +

1

N

2

η

=

N

+

1

2

β

lim

x

→0

cosh

1

/x

2

x

=

e

1

/

2

2

cosh

i

−1

β

e

σ

2h

2

η

2

2

t

+ 2

2

h

2

η

2

e

σ

2

η

2

t

2h

2

N

(1

A

) cosh

η

cosh

1

2

β

N

(1 +

A

) sinh

η

sinh

1

2

β

=

η

sinh

η

[

µ

2

h

2

σ

4

η

2

]

[

σ

4

η

2

µ

2

h

2

+

µhσ

2

]

!+;#

(20)

e

µ

2t

2

σ

2

h

2

(

µ

2

h

2

σ

4

η

2

)

η

sinh

η

(

σ

2

µh

µ

2

h

2

+

σ

4

η

2

)

e

µh

σ

2

e

σ

2

η

2

t

2h

2

!+6#

+: + +6 +9 2 %

f

τ

(

t

|

h

) =

e

µ

2

t

2

σ

2

h

n

=0

(

σ

4

θ

2

n

+

µ

2

h

2

)

θ

n

sin

θ

n

(

σ

4

θ

2

n

+

µ

2

h

2

σ

2

µh

)

e

µh

σ

2

e

σ

2

θ

2

nt

2h

2

+

K

!+5#

2

θ

n

%& &

tan

θ

n

=

σ

2

µh

θ

n

!+"#

K

&

K

=

0

µ <

σ

2

h

3

σ

2

2

eh

2

µ

=

σ

2

h

σ

2

h

2

(

µ

2

h

2

σ

4

η

2

)

η

sinh

η

(

σ

2

µh

µ

2

h

2

+

σ

4

η

2

)

e

µh

σ

2

e

σ

2

η

2

t

2h

2

µ >

σ

2

h

!+4#

2

η

%& &

tanh

η

=

σ

2

µh

η

!+:#

+5 +94 ( 2

G

M DD

(

h

|

T

) = 2

σ

4

n

=1

θ

n

sin

θ

n

σ

4

θ

2

n

+

µ

2

h

2

σ

2

µh

e

µh

σ

2

1

e

σ

2

θ

2

nT

2h

2

e

µ

2

T

2

+

L

!+:9#
(21)

L

=

0

µ <

σ

h

2

3

e

1

e

µ

2

T

2

µ

=

σ

h

2

2

σ

2

η

sinh

η

(

σ

2

µh

µ

2

h

2

+

σ

4

η

2

)

e

µh

σ

2

1

e

µ

2

T

2

e

σ

2

2h

η

2

2

T

µ >

σ

2

h

!+:#

!

,%,222

E

[

M DD

|

T

] =

0

G

(

h

|

t

)

dh

2 %& & &+ &

,% A %

µ

+ 721 ,%

2

µ

+

µ

= 0

2

µ

= 0

& +" &

θ

n

= (

n

1

2

)

π

+

2 &

G

(

h

|

T

) = 2

n

=1

sin(

n

1

2

)

π

(

n

1

2

)

π

1

e

σ2(n

1

2 )

2

π

2

T

2

2h

2

!+::#

=

2

π

n

=0

(

1)

n

(

n

+

1

2

)

π

1

e

σ2(n

+ 12 )

2

π

2

T

2

2h

2

!+: #

,% & , 22

E

[

M DD

] =

0

G

(

h

|

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160

Cost Value

Iteration#

AlphaBoost

AdaBoost

0.15

0.2

0.25

0.3

0.35

0.4

0

20

40

60

80

100

120

140

160

Out of Sample Error

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20

40

60

80

100

120

140

160

Cost

Iteration

AlphaBoost

AdaBoost

0.24

0.245

0.25

0.255

0.26

0.265

0.27

0.275

0.28

0

20

40

60

80

100

120

140

160

OOS Error

Iteration

AlphaBoost

AdaBoost

0

0.2

0.4

0.6

0.8

1

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0

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0

0.1

0.2

0.3

0.4

0.5

0.6

0

20

40

60

80

100

120

140

160

Cost

Iteration

AlphaBoost

AdaBoost

0.04

0.045

0.05

0.055

0.06

0.065

0.07

0.075

0.08

0.085

0

20

40

60

80

100

120

140

160

OOS Error

Iteration

AlphaBoost

AdaBoost

0

0.2

0.4

0.6

0.8

1

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AdaBoost(100)

AlphaBoost

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0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0

20

40

60

80

100

120

140

160

Cost

Iteration

AlphaBoost

AdaBoost

0.16

0.18

0.2

0.22

0.24

0.26

0.28

0.3

0

20

40

60

80

100

120

140

160

OOS Error

Iteration

AlphaBoost

AdaBoost

0

0.2

0.4

0.6

0.8

1

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0.5

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AdaBoost(100)

AlphaBoost

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0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0

20

40

60

80

100

120

140

160

Cost

Iteration

AlphaBoost

AdaBoost

0.08

0.09

0.1

0.11

0.12

0.13

0.14

0.15

0.16

0.17

0.18

0

20

40

60

80

100

120

140

160

OOS Error

Iteration

AlphaBoost

AdaBoost

0

0.2

0.4

0.6

0.8

1

-1

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0

0.5

1

AdaBoost(100)

AlphaBoost

AdaBoost

(41)

0.35

0.4

0.45

0.5

0.55

0.6

0.65

0.7

0.75

0.8

0

20

40

60

80

100

120

140

160

Cost

Iteration

AlphaBoost

AdaBoost

0.19

0.2

0.21

0.22

0.23

0.24

0.25

0.26

0.27

0.28

0

20

40

60

80

100

120

140

160

OOS Error

Iteration

AlphaBoost

AdaBoost

0

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0

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0.3

0.4

0.5

0.6

0.7

0.8

0.9

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20

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100

120

140

160

Cost

Iteration

AlphaBoost

AdaBoost

0.19

0.2

0.21

0.22

0.23

0.24

0.25

0.26

0.27

0

20

40

60

80

100

120

140

160

OOS Error

Iteration

AlphaBoost

AdaBoost

0

0.2

0.4

0.6

0.8

1

-1

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0

0.5

1

AdaBoost(100)

AlphaBoost

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